Russia's easy oil money thwarting tough reforms, analysts say

MOSCOW—The poverty of the early `90s is vanishing. The 1998 ruble crisis is a distant memory. The state's coffers are full, and economic growth is slowly beginning to spread outside the capital to Russia's vast interior.

So why worry?

After all, energy prices, which are fueling Russia's boom, look to remain high as far as the eye can see.

Petro-dollars by the billions are allowing President Vladimir Putin's government to avoid the tough reforms that the country needs to build a modern, entrepreneurial economy, according to some Russian analysts. Senior U.S. officials echo those views privately.

"We need to build a knowledge-based economy," said Andrei Kortunov, the president of the Moscow-based New Eurasia Foundation, a nongovernmental group. "Right now, it's difficult, because it's so easy to make money in oil."

Kortunov's group helps fund Western-style civil society and small business initiatives across Russia. It was one of several that state-run Russian TV named in January in a broadcast alleging that British spies were channeling money to Russian nonprofits, which the government sometimes charges are agents of foreign influence. All the groups denied the charge.

Few if any countries have built modern economies based on oil exports alone, Kortunov noted.

Putin has reasserted the Kremlin's control over Russia's energy resources, meaning that the country's oil and natural-gas riches tend to enhance the power of the state, rather than fuel private initiative and business start-ups.

Russia isn't alone in the trend. Many foreign-policy analysts worry that as energy demand soars worldwide, authoritarian regimes sitting on oil and gas deposits from Central Asia to the Mideast and Africa are more able to blunt pressures for greater democracy.

Tens of millions of Russians still live in poverty, or something close to it, while the favored few "New Russians" drive Ferraris and shop in gourmet food stores.

A U.S. businessman with lengthy experience in Russia estimated that 2 percent of the country is "haves," the rest "have-nots."

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